IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/31900.html
   My bibliography  Save this paper

Getting on Track for a Sustainable Retirement: A Reality Check on Savings and Work

Author

Listed:
  • Pfau, Wade Donald

Abstract

The aim of traditional retirement planning is to set a wealth accumulation target for your retirement date so that your desired expenditures can be obtained using a “safe” withdrawal rate. But it is quite difficult to know if you are making progress toward this target. Volatility over short periods of time strongly limits the usefulness of using your current wealth accumulation at ten or even five years before retirement to predict your final retirement wealth. Fortunately, it is not necessary to focus on a retirement wealth accumulation target. The accumulation and retirement phases should not be treated separately in this way. This paper outlines a framework for considering if someone in mid-career is on track for a sustainable retirement. It investigates what combinations of savings rates and years of continued work would have allowed someone to have always accumulated enough by retirement to afford one’s desired retirement expenditures in all of the rolling periods from the historical data. A strategy is “safe” if it worked in the worst-case offered thus far by history. I consider a 55 year old as a case study to show what savings rate will be needed to retire 10 years later, or how much longer one should work with a variety of other savings rates. Results are shown for a wide variety of situations. These findings can potentially serve as a reality check about the sustainability of one’s retirement plans.

Suggested Citation

  • Pfau, Wade Donald, 2011. "Getting on Track for a Sustainable Retirement: A Reality Check on Savings and Work," MPRA Paper 31900, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:31900
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/31900/1/MPRA_paper_31900.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Shiller Robert J., 2005. "Life-Cycle Portfolios as Government Policy," The Economists' Voice, De Gruyter, vol. 2(1), pages 1-9, August.
    2. Pfau, Wade Donald, 2011. "Can We Predict the Sustainable Withdrawal Rate for New Retirees?," MPRA Paper 30877, University Library of Munich, Germany.
    3. Pfau, Wade Donald, 2011. "Safe Savings Rates: A New Approach to Retirement Planning over the Lifecycle," MPRA Paper 28796, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Why $1 Million Won't Cut It In Retirement
      by Mandi Woodruff in Business Insider on 2013-10-04 22:05:21
    2. Getting on Track for Retirement
      by Wade Pfau in Pensions, Retirement Planning, and Economics Blog on 2011-06-29 07:57:00
    3. Retirement Planning and Worst-Case Scenarios
      by Wade Pfau in Pensions, Retirement Planning, and Economics Blog on 2011-07-02 19:45:00
    4. Dan Ariely on Spending in Retirement
      by Wade Pfau in Pensions, Retirement Planning, and Economics Blog on 2011-09-03 04:06:00

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Steven James Lee, 2021. "Does Fixed Income Buffer against Fraud Shocks?," JRFM, MDPI, vol. 14(10), pages 1-22, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Finke, Michael & Pfau, Wade Donald & Williams, Duncan, 2011. "Spending flexibility and safe withdrawal rates," MPRA Paper 34536, University Library of Munich, Germany.
    2. Pfau, Wade Donald, 2011. "Withdrawal Rates, Savings Rates, and Valuation-Based Asset Allocation," MPRA Paper 35329, University Library of Munich, Germany.
    3. Steven James Lee, 2021. "Does Fixed Income Buffer against Fraud Shocks?," JRFM, MDPI, vol. 14(10), pages 1-22, October.
    4. Wiafe, Osei K. & Basu, Anup K. & Chen, En Te, 2020. "Portfolio choice after retirement: Should self-annuitisation strategies hold more equities?," Economic Analysis and Policy, Elsevier, vol. 65(C), pages 241-255.
    5. Pfau, Wade Donald, 2011. "Can We Predict the Sustainable Withdrawal Rate for New Retirees?," MPRA Paper 30877, University Library of Munich, Germany.
    6. Pfau, Wade Donald & Kariastanto, Bayu, 2012. "An international perspective on “safe” savings rates for retirement," MPRA Paper 39066, University Library of Munich, Germany.
    7. Pfau, Wade Donald, 2012. "Choosing a Retirement Income Strategy: Outcome Measures and Best Practices," MPRA Paper 39145, University Library of Munich, Germany.
    8. Pfau, Wade Donald, 2011. "Retirement Withdrawal Rates and Portfolio Success Rates: What Can the Historical Record Teach Us?," MPRA Paper 31122, University Library of Munich, Germany.
    9. Meng, Channarith & Pfau, Wade Donald, 2011. "Retirement savings guidelines for residents of emerging market countries," MPRA Paper 31682, University Library of Munich, Germany.
    10. Basu, Anup K. & Chen, En Te & Clements, Adam, 2014. "Are lifecycle funds appropriate as default options in participant-directed retirement plans?," Economics Letters, Elsevier, vol. 124(1), pages 51-54.
    11. Andrew Clare & James Seaton & Peter N. Smith & Stephen Thomas, 2019. "The Rehabilitation of Glidepath Investing," Discussion Papers 19/17, Department of Economics, University of York.
    12. Andrew Clare & James Seaton & Peter N. Smith & Stephen Thomas, 2017. "Decumulation, Sequencing Risk and the Safe Withdrawal Rate: Why the 4% Withdrawal Rule leaves Money on the Table," Discussion Papers 17/06, Department of Economics, University of York.
    13. Lu Fan & Richard Stebbins & Kyoung Tae Kim, 2022. "Skint: Retirement? Financial Hardship and Retirement Planning Behaviors," Journal of Family and Economic Issues, Springer, vol. 43(2), pages 354-367, June.
    14. Iqbal Owadally & Steven Haberman & Denise Gómez Hernández, 2013. "A Savings Plan With Targeted Contributions," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(4), pages 975-1000, December.
    15. Andreas Lichtenstern & Pavel V. Shevchenko & Rudi Zagst, 2019. "Optimal life-cycle consumption and investment decisions under age-dependent risk preferences," Papers 1908.09976, arXiv.org.
    16. Shiller, Robert J., 2006. "Life-cycle personal accounts proposal for Social Security: An evaluation of President Bush's proposal," Journal of Policy Modeling, Elsevier, vol. 28(4), pages 427-444, May.
    17. Andrew D. Clare & James Seaton & Peter N. Smith & Stephen H. Thomas, 2021. "Can sustainable withdrawal rates be enhanced by trend following?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 27-41, January.

    More about this item

    Keywords

    retirement planning; lifetime perspective; safe savings rate; safe retirement age; wealth accumulation targets; retirement spending goals; safe withdrawal rates;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:31900. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.